Homestead Planning Tip

There is an interesting asset protection planning idea in article published in ABA Health eSource and co-authored by attorneys Alan Glassman of Clearwater, Florida and Justin Pikramenos of Stetson University in Deland, Florida.The article addresses the hypothetical situation where a debtor jointly owns with his spouse an expensive homestead property and where the debtor also has substantial amount of non-exempt assets titled in his name individually. For example, assume that the jointly owned homestead is worth $1,000,000 and the debtor has $500,000 of individually owned assets. Glassman and Pkramenos suggest that the debtor spouse buy his non-debtor’s spouse ½ interest in the homestead property for $500,000 and that payment be made with the debtor’s $500,000 of non-exempt assets. The debtor spouse would end up with 100% ownership of the exempt homestead and no non-exempt assets.

The transaction would be relatively difficult to challenge as a fraudulent conveyance because the debtor spouse will have transferred non-exempt assets to the non-debtor spouse for reasonable consideration, that is, one-half of a homestead valued roughly equal to the amount of non-exempt assets transferred to the non-debtor spouse. The general rule is that a conveyance for adequate consideration can be reversed only if the creditor can prove the transfer was made with actual intend to hinder or delay the creditor’s claim. The fraudulent transfer attack is best defended if the debtor can demonstrate a viable estate planning or tax benefit.

Even if the debtor loses the fraudulent conveyance argument, the situation is no worse than it was at the outset of the plan. The most likely outcome in this hypothetical would be some settlement with the creditor on terms more favorable than if the debtor had not purchased the non-debtor’s spouse’s homestead interest.

Thanks to Alan and Justin for the idea.


About the Author

Jon Alper is an expert in asset protection planning for individuals and small businesses.

Jon Alper

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